Nonexecutive director influence on informational asymmetries in Caribbean offshore financial centers
Nonexecutive director influence on informational asymmetries in Caribbean offshore financial centers
Question/issue: this is a study of the relationship between nonexecutive director personal ownership and firm's bid ask spreads in listed firms from across the Caribbean offshore securities exchanges.
Research findings/insights: we report that bid ask spreads increase with nonexecutive ownership. However, this result is reduced (negatively moderated) in the context of higher formal institutional quality and also if the territory has a fixed exchange rate regime but exacerbated (positively moderated) if the firm is located within an offshore jurisdiction.
Theoretical/academic implications: the results regarding the influence of nonexecutive director ownership on firm liquidity-based transaction costs, namely, market estimates of bid ask spreads, are interpreted in terms of the contingency of this relationship on the wider institutional context. The effectiveness of nonexecutive directors is highly contingent upon the specific institutional context. Higher formal institutional quality and the presence of a strong macroeconomic tie between territory and Organisation for Economic Co-operation and Development (OECD) country lead to a reduction in these costs, while offshore financial centers lead to their increase. We argue that this highlights a shortcoming of agency theory's more limited view of institutions.
Practitioner/policy implications: the results support regulator's focus on board of director composition and in particular nonexecutive remuneration in the form of ownership. Given the increasing dominance of Anglo-American governance, firms worldwide are increasing the proportions of nonexecutive directors on their boards. However, their role is acutely context specific which is reflected in the relationship between their personal ownership and the liquidity-borne transaction costs of the firm as a whole.
board reputation/legitimacy, board-level governance outcomes, director independence, governance environments, multi-country
349-369
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Mohr, Alexander
9e8e679c-ea09-406b-9ab8-bb9087c89c31
Kaur, Jaskaran
b57a802f-84cb-4346-9b6c-9a37e8d1f16d
Khawar, Muhammad
73702fce-35d8-475f-9253-2cbe3c73ff83
9 May 2022
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Mohr, Alexander
9e8e679c-ea09-406b-9ab8-bb9087c89c31
Kaur, Jaskaran
b57a802f-84cb-4346-9b6c-9a37e8d1f16d
Khawar, Muhammad
73702fce-35d8-475f-9253-2cbe3c73ff83
Hearn, Bruce, Mohr, Alexander, Kaur, Jaskaran and Khawar, Muhammad
(2022)
Nonexecutive director influence on informational asymmetries in Caribbean offshore financial centers.
Corporate Governance: An International Review, 31 (2), .
(doi:10.1111/corg.12453).
Abstract
Question/issue: this is a study of the relationship between nonexecutive director personal ownership and firm's bid ask spreads in listed firms from across the Caribbean offshore securities exchanges.
Research findings/insights: we report that bid ask spreads increase with nonexecutive ownership. However, this result is reduced (negatively moderated) in the context of higher formal institutional quality and also if the territory has a fixed exchange rate regime but exacerbated (positively moderated) if the firm is located within an offshore jurisdiction.
Theoretical/academic implications: the results regarding the influence of nonexecutive director ownership on firm liquidity-based transaction costs, namely, market estimates of bid ask spreads, are interpreted in terms of the contingency of this relationship on the wider institutional context. The effectiveness of nonexecutive directors is highly contingent upon the specific institutional context. Higher formal institutional quality and the presence of a strong macroeconomic tie between territory and Organisation for Economic Co-operation and Development (OECD) country lead to a reduction in these costs, while offshore financial centers lead to their increase. We argue that this highlights a shortcoming of agency theory's more limited view of institutions.
Practitioner/policy implications: the results support regulator's focus on board of director composition and in particular nonexecutive remuneration in the form of ownership. Given the increasing dominance of Anglo-American governance, firms worldwide are increasing the proportions of nonexecutive directors on their boards. However, their role is acutely context specific which is reflected in the relationship between their personal ownership and the liquidity-borne transaction costs of the firm as a whole.
Text
Corporate Governance - 2022 - Hearn
- Version of Record
More information
Accepted/In Press date: 11 April 2022
e-pub ahead of print date: 18 April 2022
Published date: 9 May 2022
Additional Information:
Funding Information:
We would like to acknowledge the valuable feedback from editor Prof. David Oesch and two anonymous referees throughout the review process.
Keywords:
board reputation/legitimacy, board-level governance outcomes, director independence, governance environments, multi-country
Identifiers
Local EPrints ID: 481435
URI: http://eprints.soton.ac.uk/id/eprint/481435
ISSN: 0964-8410
PURE UUID: 49d442b8-593c-45a6-8a31-87f7e6e6021b
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Date deposited: 29 Aug 2023 16:43
Last modified: 06 Jun 2024 02:03
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Contributors
Author:
Alexander Mohr
Author:
Jaskaran Kaur
Author:
Muhammad Khawar
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